Intel shares (NYSE: INTC) plunged following the companies better than expected earnings report and positive guidance. Reaction from analysts and market participants was mixed for the reasons for the negative reaction. The most likely culprit is that the results were better than expected but still consistent with a company that may be in secular decline.
Another is that this is simply a tough market environment given the macro risks which are leading to a pullback in multiples for stocks across the board. Intel's decline actually led to profit-taking in the entire semiconductor sector with the VanEck Vectors Semiconductors ETF (Nasdaq: SMH) down by 4.27% on the day and below Monday's lows.
Inside the Numbers
In Q4, Intel reported $1.09 in earnings per share, beating expectations of $0.91 per share. Revenue came in at $19.5 billion which beat expectations of $18.31 billion. The company also beat expectations in terms of guidance at $18.3 billion vs $17.62 billion.
Intel's largest business, Client Computing, declined 7% to $10.1 billion. This unit has been hardest-hit by Intel's failure to keep up with its rivals in terms of chip design and production. This loss of market share in the server market is expected to continue as more consumers switch to AMD.
Intel attributed some of the weakness to PC sales which were weak due to some inventory and production issues. Many are also forecasting weakness in PC sales over the next year as consumers have spent heavily on electronics during the pandemic which may lead to more spending on travel and restaurants this year.
The Data Center Group unit topped expectations as well with 20% increase in revenue to $7.3 billion, while analysts were looking for $6.7 billion. It also said that its next-generation server chip, Sapphire Rapids, should begin shipping in Q2 alleviating worries of another delay.
The company's Mobileye subsidiary that is focused on autonomous driving tech reported $356 million in revenue, a 7% increase. The company announced its intention to spin it off as its own entity sometime this year.
Of course, the biggest story for Intel is the ramping up of capital expenditures that would allow it to fabricate other companies' designs and increase the production of its own PC and server chips. This is also seen as a major solution to alleviating the world's chip shortage.
To this end, Intel announced a new chip-making complex in Ohio that is set to begin production in 2025. Plans call for up to 8 fabs with the initial cost being $20 billion for the first 2 factories. So, it's not surprising that gross margins are projected to compress with these higher costs.